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The COVID-19 pandemic and soaring stock market have led more than a million workers to leave the workforce since February 2020.
And, according to a recent survey, early exits from the workforce could become a new normal, with nearly half of all Americans expecting to retire before turning 62. But, to be successful, they will need careful planning and money management.
Let’s take a look at how you can prepare to retire at 62 without risking your financial or emotional health in later years.
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Most people dream of early retirement. After decades of working, they envision a slower and relaxed life filled with vacations, hobbies, and grandchildren. But, for some people, the early excitement wears off and boredom sets in. After all, most of our lives and social circles revolve around work, and retirement can disconnect them.
There are a few questions to ask before pursuing early retirement:
There is no easy or generalized answer to these questions. For example, some studies have shown that working longer results in a longer lifespan since people have a greater purpose. On the other hand, many stressful and sedentary jobs can lead to a shorter lifespan. Therefore, the right decision depends on your unique circumstances.
There’s always an opportunity cost to early retirement. When you start drawing down your savings, you miss out on the potential appreciation of those savings over time. Similarly, if you take Social Security early, you miss out on higher monthly payments over your lifetime. Fortunately, proper planning can help you make these trade-offs.
There are four significant steps to prepare for early retirement:
Of course, the two most significant considerations are taking early Social Security and paying for health insurance. Early Social Security often involves a 20% to 30% reduction in lifetime benefits (including spouses), and private health insurance is a five-figure annual cost. As a result, you shouldn’t make these decisions lightly.
In addition to these steps, you may want to consider your need for life insurance or long-term care insurance, as well as any desire to leave a financial legacy to your children or charity. If that’s the case, you may need to work a little longer to save up enough money or plan to devote some of your retirement budget to these causes.
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Early retirement is a dream for many people, but it carries many financial and emotional risks. Fortunately, you can mitigate many of these risks with proper planning and money management. The key to success is having realistic expectations during retirement and conservative estimates when assessing your finances.
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